Countering slash and burn on pensions
With Britain now in the grip of the worst recession since the 1930s, we’ve got to do everything in our power to safeguard pension schemes. Unless we act now, there is a very real danger that ordinary people could pay a severe price in retirement for the monumental profligacy of City bankers.
I accept that the climate for employers and for fund managers is extremely difficult – low interest rates, poor returns and increasing life expectancy are all having an impact. And where firms are genuinely struggling to meet their pensions obligations, unions want to enter into a positive dialogue with them about the way forward.
But there is a nagging suspicion that some firms (including many that took contribution holidays in the 1990s) are using the current recession as a convenient excuse to adopt a slash and burn approach to occupational pensions. Adopting precisely the same short-term, profit-maximising mentality that gave us the financial crash in the first place.
Over the past few weeks, we’ve seen some pretty alarming developments across UK plc. Barclays taking the unprecedented step of closing its final salary scheme to 18,000 existing staff, Dairy Crest following suit, with 3,500 employees affected there. And 55 other firms set to do the same, according to a study published by PriceWaterhouseCoopers last week.
None of us should be in any doubt as to what the flight from defined benefit schemes means in practice. It means millions of the pensioners of the future facing poverty – their well-being suffering, and all at an extra cost to the taxpayer.
And it’s not just the private sector where we must be on our guard. With the public finances in their worst shape since the second world war and the Tories resorting to populist rhetoric about ‘pensions apartheid’, we must be prepared to defend the public sector pensions settlement we agreed in the autumn of 2005.
As pension funds own a significant tranche of UK plc (including shares in some of our leading financial institutions) they are in a unique position to influence the behaviour of firms they invest in.
Responsible, engaged investment can enable risks to be managed more effectively, it can push companies to behave more responsible towards workers, communities and the environment, and, perhaps most pertinently, it can deliver long-term returns for investors.
But hands-on investor behaviour still remains the exception rather than the norm. As I blogged yesterday, a lack of shareholder oversight, especially in the banks, was one of the contributory factors to the financial crisis of the past two years.
So the case for a fundamental change of direction – for a new age of engaged investment – is perhaps more compelling now than ever before. I believe we have a genuine window of opportunity to promote more active, responsible investment behaviour – and in doing so to help create a new kind of financial capitalism.
This post is taken from part of what I will be saying to the TUC Member Trustees Conference in London today.